Patnon Plastic needs some cash to finance expansion. Patnon issued the following debt to acquire the cash:

Question:

1. A five-year note with a stated interest rate of zero, a face value of $20,000, and an effective interest rate of 10 percent.

2. An eight-year note with an annual stated rate of 8 percent and face value of $35,000. Interest is paid annually on December 31. The effective interest rate is 10 percent.

3. A ten-year note with an annual stated rate of 8 percent and a face value of $50,000. Interest is paid semiannually on June 30 and December 31. The effective interest rate is 8 percent.

All three notes were issued on January 1, 2012.

Required:

(a) Compute the proceeds from each of the three notes.

(b) Prepare the entries to record the issuance of each note.

(d) Prepare the entries to record the interest paid on December 31, 2012, on the eight-year note and the ten-year note.

(e) Prepare the adjusting entry required on December 31, 2012, recognized accrued interest on the five-year note.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...